High School

If Bill and Ted each consume 15 chocolate bars at the current price, and if Bill's demand for chocolate bars is more elastic than Ted's, then which of the following statements is true regarding their consumer surplus?

A. Bill's willingness to pay for the last chocolate bar is greater than Ted's.
B. Ted's willingness to pay for the last chocolate bar is greater than Bill's.
C. Bill's consumer surplus equals Ted's.
D. Bill's consumer surplus is greater than Ted's.

Answer :

Final answer:

Since Bill's demand for chocolate bars is more elastic than Ted's, Ted will have a higher willingness to pay for the last chocolate bar, leading to a greater consumer surplus for that bar. Hence, the correct option is b) Ted's willingness to pay for the last chocolate bar is greater than Bill's.

Explanation:

If Bill and Ted each consume 15 chocolate bars at the current price, and Bill's demand for chocolate bars is more elastic than Ted's, we can infer certain things about their consumer surplus. The concept of consumer surplus is rooted in the idea that consumers derive some benefit when they are able to purchase a product for less than what they would have been willing to pay.

Specifically, it's the difference between the total amount that consumers would have been willing to pay and the total amount that they actually do pay. In this scenario, since Bill's demand is more elastic, he would be more sensitive to price changes. Therefore, if the price were to increase, Bill would reduce his quantity demanded significantly, while Ted would not.

This implies that at the last unit purchased, which is the 15th chocolate bar, Bill's willingness to pay must be closer to the market price than Ted's, making his consumer surplus smaller for that last unit. In contrast, Ted's willingness to pay would be higher because his quantity demanded does not decrease as much with a price increase (inelastic demand).

As such, he derives more surplus from the last bar than Bill does. However, we cannot compare their total consumer surplus without additional information about their willingness to pay for each of the 15 chocolate bars.